Unexplained Wealth Order: ​Taking Note of The New UK Law, By Paul Olanitan

The ongoing Voluntary Assets and Income Declaration Scheme’s tax amnesty is a potential escape. VAIDS allows Nigerians to regularise their tax status but importantly it entails an asset declaration. This basically allows citizens to restate their income and asset over the last seven years and beyond. There is, therefore, hope of a valid defence against an UWO application.

In our secondary school days, those unfortunate enough to lose their belongings would be admonished: ‘Lost property….Careless owner’. The United Kingdom government is planning to teach many high net worth Nigerians and some members of our middle class, a financially painful school lesson.

In recent years, the UK had one of the best performing property markets in the world. It was buoyed by inflows from Russia, China, Dubai and Nigeria. With high global oil prices, the new class of super-rich were feted and courted by the British with few questions asked as they snapped up attractive UK properties. But there were warnings that all was not well. In March 2015, Reuters cited the UK as a haven for illicit funds.

Transparency International’s executive director, Robert Barrington, said in 2015 that, “There is growing evidence that the UK property market has become a safe haven for corrupt capital stolen from around the world, facilitated by the laws which allow UK property to be owned by secret offshore companies.” Over 36,000 properties in London, mainly in highbrow areas, are said to be owned by offshore companies. Various reports cited London as a money laundering haven, but the UK government was conspicuously silent on the issue, turning a blind eye as millions of dollars poured in.

Sceptics may suggest that the UK government is looking for how to fund the bill for its Brexit divorce from the European Union or to finance its budget deficit. Whatever the reason, the new UK law that introduces ‘Unexplained Wealth Orders’ is a carefully devised move that could see a massive transfer of wealth from Nigeria and the countries mentioned above to Britain.

There is a special focus on politically exposed persons, but there is an implied presumption of guilt for non-politicians too. Interestingly, the orders can be obtained even if the property was purchased before the law came into effect and it does not matter where the property is located, whether or not the person resides in the UK or whether there may be other persons who hold the property.

From January 31, 2018, new powers have enabled the UK government to query ‘Unexplained Wealth’ and seize asset whose funding source cannot be explained. UK courts can grant Unexplained Wealth Orders (UWOs) and forfeit property for which the owners are unable to prove the source of fund. The properties will be transferred to the UK government and sold to fund their law enforcement efforts.

Whilst the narrative in the UK is that the plan is to tackle Russian oligarchs, Nigerians will undoubtedly be affected due to their love for all things British, and the threshold is just £50,000 (N25 million). According to a British law firm, Mishcon de Reya, the requirements for obtaining the UWOs include that “there are reasonable grounds to suspect that the known sources of the respondents’ lawfully obtained income would have been insufficient for the purposes of enabling them to obtain the property.” There is a special focus on politically exposed persons, but there is an implied presumption of guilt for non-politicians too. Interestingly, the orders can be obtained even if the property was purchased before the law came into effect and it does not matter where the property is located, whether or not the person resides in the UK or whether there may be other persons who hold the property. In summary, it will be relatively easy for the UK government to secure these orders against foreigners.

Those who have followed that standard advice to have two or even three layers of nominee ownership to shield the identity of the true owner will find themselves as targets. This standard structure, advocated by offshore specialists who set up trusts in Mauritius, British Virgin Islands and other havens, will not offer protection against UWOs if the ultimate owner cannot explain the source of funds. The UK has already put in place the Beneficial Ownership register for Overseas Legal Entities. This means that a Nigerian who owns a UK property through a Mauritius based Trust, for example, could see their names exposed and therefore need to prove the legitimacy of the source of funds.

However, thankfully, for Nigerians there is a way out. This is one of those rare situations, where Nigerians should be extremely grateful to their government.

Nigerians should run, declare and regularise their tax status, so that the UK’s Unexplained Wealth law does not become an unexplained loss of wealth. Anyone ignoring this threat is doing so at his or her own peril.

The ongoing Voluntary Assets and Income Declaration Scheme’s tax amnesty is a potential escape. VAIDS allows Nigerians to regularise their tax status but importantly it entails an asset declaration. This basically allows citizens to restate their income and asset over the last seven years and beyond. There is, therefore, hope of a valid defence against an UWO application. If a Nigerian is confronted with an UWO action, but had declared the asset and paid the right taxes no matter how many years after the purchase, it will be hard for the UK to justify a seizure.

Without the tax amnesty, Nigerians would be at serious risk, scrambling around to procure backdated tax clearance certificates, which would be readily disregarded by the UK courts on the grounds that there would be no evidence of tax payment in the year under question. Of course, VAIDS was not designed as an amnesty for looted funds or hot money but it could offer a very valuable protection.

Nigerians have traditionally not paid taxes and have never been asked to fully explain their income. That era is over forever and with the volume of investments in the UK property market, we are particularly vulnerable. For the UK government to dispute the validity of a VAIDS declaration that Nigeria has accepted and on which taxes have been paid, would violate the bilateral tax treaties between the two countries and would mean the UK questioning the legality of the Nigerian government’s ongoing tax amnesty.

My simple advice to my fellow Nigerians first, is to thank President Muhammadu Buhari and his economic management team for this timely intervention but ask for an extension of time. Secondly, Nigerians should run, declare and regularise their tax status, so that the UK’s Unexplained Wealth law does not become an unexplained loss of wealth. Anyone ignoring this threat is doing so at his or her own peril.